How will we insure our digital future?

The “Internet of Things” and Big Data analysis make it possible to collect, connect, and create information. This opens up many new opportunities for society, but also presents threats. For example, companies, organizations and countries are victims of cyber attacks that reveal security vulnerabilities which may have serious consequences. Measures by regulatory authorities are a common means to manage cyber threats, however it is difficult to estimate digital risks and legislators have the potential to over-regulate. When regulations move beyond conventional standards, they could put the brakes on or block profitable business models.

Here is where the insurance industry can step in: by diversifying risks over a large client base, insurers can play a crucial role in making the situation more predictable. Because digital risks today are large and unpredictable, the insurance industry and regulators should cooperate closely. Only like this the task of diversifying societal risks can be fulfilled. Reinsurers can play the part of being a mediator between the insurance industry and regulators. No one understands risk better than reinsurers who have a comprehensive overview of the needs of their end customers. As “insurance for the insurer,” reinsurers are like the safety net below the insurers. Within the complex digital ecosystem, a smart regulation solution can only be developed after considering the needs of everybody, if we are going to prepare ourselves for the dangers of the digital world.

In asset management, for example, risks are particularly evident due to networks of trading platforms and the exceedingly high volume of transactions. Gaps in digital security represent a major risk, and cyber attacks can infiltrate a system within nanoseconds. A well-defined regulatory framework with appropriate risk standards, prevention measures and standardized audits is needed. An approach to regulation could be jointly developed with the (re)insurance industry, to set out the assessment and evaluation of digital risks, ensuring that the insurance industry would be accepting the risk assessments. This would guarantee adequate risk diversification and support digital development.

Reinsurers would help in the empirical assessment of risks, provide benefits in cases of damages and prevent the collapse of market participants in uninsured cases. A breakup of large insurance companies because of unpredictable risks or debilitating regulations would have devastating consequences for the entire insurance industry and must be avoided at all costs. All parties must cooperate for the preservation of digital innovation when it comes to regulatory measures. Just as the digital economy is a driver of innovation, overregulation can impede innovation.